Jeronimo Martins SGPS SA
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Ladies and gentlemen, thank you for standing by, and welcome to the Jernimo Martins First Quarter Results 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Ana Lusa Virgnia, Chief Financial Officer of Jernimo Martins Group. Please go ahead, madam.
Good morning, ladies and gentlemen, and thank you for joining this call. Before I invite you to go through the Jernimo Martins first quarter 2020 results, I will give the floor to our Chairman and CEO, Mr. Pedro Soares dos Santos. Mr. Pedro Santos, the floor is yours.
Good morning, ladies and gentlemen. I hope you are well and safe. As we gather here today to look at Jernimo Martins first quarter results, I ask you to be in mind, 3 words: prudence, resilience and commitment. After a very strong 2019, our company start 2020 in full shape to keep growing and delivering. And so they did it in January and February. As the first COVID-19 cases were confirmed in our countries, first in Portugal on the 2nd of March; then Poland two days later; and finally, Colombia, two days after Poland, governments react different and so did the consumers. As a group, we have been paying close attention to the evolution of the COVID-19 since late January. On the 28th of January, two days before the World Health Organization declare the outbreak of COVID-19 as a public health emergency of international concern, we had forbidden all the business trips to China. This was the start of our prudent approach to managing the situation. On the 3rd of February, we sent a group internal communication with information on the virus and prevention. On March 9, two days before the health -- the World Health Organization declared that the outbreak of COVID-19 has reached the scale of a global pandemic, Biedronka proactive communicated the reinforcement of shops and cart disinfection and introduce in-store communication on prevention practice. Two days later, while securing supply chain continuity, the company launched its foundation to actively support the seniors in need. On March 13, the day of the Portuguese government declared the state of alert, I public announced in Portugal that in order to protect business continuity and our people and client safety, opening hours in Pingo Doce and Recheio stores were to be reduced to allow half of our people to go home. For several weeks, we kept in Portugal over 14,000 people protected in empty confinement at their homes while paying their full salary. And so we did for a couple of weeks in Poland, where three days before the Polish Prime Minister introduced the state of epidemic in the country, Biedronka had already introduced disinfectants, safety glasses and limitation the number of people in the stores. And we certainly have been using our experience in dealing with this pandemic in Portugal and Poland to anticipate risks and necessary measures to be taken in Colombia. The additional costs incurred in the last 2 weeks of March allow our banners to operate safely and estimated around EUR 15 million. I believe what I share with you so far today allows you to understand how we have been guided by a sense of prudence and also a courage to do the right things in a tough, uncertain times. It was also out of prudence that we have decided to postpone Q1 results announcement to a moment of slightly improved visibility. And that have decide to suspend investments in the new stores and remodeling project.Second, remove the guidance and third, submit to the annual general meeting the reduction of the dividend payout from 50% to 30% of the 2019 consolidated net earnings. We have always valued having a strong balance sheet and freedom of choice as we move forward. And when uncertainty is at the peak, this rule is even more important to us. Despite the material first impact of COVID-19 on our business, we managed to end the quarter with a solid net cash position of EUR 137 million. This tell us a lot about the resilience of our companies. Ana Lusa will guide you in detail through the different companies' performance, and therefore, I will not go very specific here. I just want to emphasize that our company's performance in the period are very much depending on the evolution of the pandemic in each geography and different approach from the different governments. Although being, by many times, the smaller of our countries, Portugal has been so far with no doubt the one that suffers the most, not only in terms of absolutely number of cases or infections, but above all, in what concerns the number of debt. Pingo Doce and Recheio start to feel the negative impact of the sanitary crisis immediately after week 11, the week of stock billing in Portugal. The 3 consecutive periods of the emergency state in Portugal, which lockdown already crippling the economy, have been hard on our Portuguese operations. Like-for-like of both Pingo Doce and Recheio were negative in March. And in April, the severe restrictions to the number of circulation of people and limits on the number of customers per store have led to a reduction of over 14% in Pingo Doce likes-for-likes versus the same month in 2019. In what concerns Recheio, the loss of record trade due to mandatory lockdown of hotels, restaurants and cafes has generate a material impact on the company activity. Sales decline marked the last 2 weeks of March extending into April. Easter, as we are used to knowing, did not exist in Portugal and Poland, being also source of additional pressure. Biedronka proved to be our most resilient company during this hard [ crisis ]. Fighting with every possible weapon to grow sales from around the clock opening hours to special promotions during nighttime, Biedronka managed to increase top line in April by 6.5 and to reinforce its market share. We have postponed to my first quarter results release in order to provide you with slightly increased visibility on the different levels of impact on performance according each country's strategy and execution. However, we are not to extrapolate it on the basis of April performance. We feel that uncertainty is very high, and we are still facing too many unknowns. In Europe, including Portugal and Poland, we are seeing an easing of lockdown measures as business reopen and life tries to resume some of its routines. In Poland, where Presidential election has been postponed due to the public health crisis, hotels, shops, shopping centers, museums and galleries have reopened last week, mostly on the basis of one person per 15 square meters. Both the European Commission and the International Monetary Fund anticipate the worst economy recession in Portugal since 1974. According to data from the European Commission based on survey performed in April, the Portuguese consumers are the most pessimistic of the entire European Union when it comes to the way they see the economic situation and the unemployment evolution in the next 12 months. This certainly explain, at least in part, the drop in consumption that we are seeing and it validates our strategy of putting price at the center of everything we do. The Portuguese economy is now slowly opening up, and our central head office will also start to reopen next Monday, 18. In Colombia, there is a mandatory curfew, and around 30% of our stores network is under the obligation of closure during the weekend. As such, Ara is dealing with the complexity resulting from different municipalities' approach to the pandemic. The company is strongly betting on pushing a one-stop shop, commercial offer to consumers while reinforcing its price position. In this context of this global pandemic, I believe the results we are delivering in the first quarter to be sound. This reflects a secure underlying operational performance, strong resilience and the remarkable commitment of our teams and partners in the supply chain. Tough crisis like this one are acid test to our ability to live up to our values and our sense of mission. My confidence in our team's ability to hold on and stay strong in face of diversity is behind -- beyond words. The strong will of our suppliers, in particular small and medium ones, to fight and keep going deserves to be supported. And we are happy that we are in a position to help by buying their product and incentivizing consumers to keep buying them at a very attractive price. We will also keep reinforcing our social commitment and investment also by contributing to COVID-19 global response and also by financing scientific investigation on this disease. I believe our organization culture, being disciplined, efficient driving and focus on operational excellence, has been planning an important role on this battle and will continue to be a positive force behind our performance in the near future. Uncertainty remains very high, and we will keep putting our best efforts into balancing products and courage at all levels. Our commitment to shareholders motivate our intention to propose, if the evolution of the situation allows it, the distribution from the company free reserves and before the end of the year of the remaining EUR 86 million that we are keeping for now. One last word on the commitment that is at the core of who we are as a business, the commitment to keep growing in a profitable and sustainable way even against the hoods. I will now give the floor to Ana Lusa. Thank you for your attention and stay safety.
Thank you, Chairman. As a reminder, all materials, including the release and a slide presentation, are available in our corporate website. Please remember that as from this quarter, all the analysis will be made using the numbers under IFRS 16. To provide you with historical series, you can find our financial statements without the application of this accounting standard in the appendix of this presentation. After a strong year in 2019, all our banners started 2020 with enhanced value propositions and reinforce competitiveness. This led to strong sales growth in the first months of 2020; January and February having been, in this respect, quite remarkable. However, March was the month which marked the quarter, unfortunately, as we all know, not for good reasons. The beginning of the COVID-19 outbreak raised unpredictable challenges to which our teams responded with determination, firmly assuming the responsibility of guaranteeing that the supply chain would continue to work and that food products would continue to be available to consumers. Protecting our people, our customers and continuing to look after the ones that rely on us were the priorities we set since the first moment of this global health crisis. The costs incurred to guarantee that our businesses would operate safely pressured EBITDA margin in the quarter. This crisis found our group in a strong financial situation, which reinforces our confidence in being able to navigate these troubled waters while maintaining intact our long-term ambitions. For a long time, we have been conservative with regards to balance sheet management. And although the resilience of our main businesses to the first impact of the outbreak is reassuring, we also acknowledge the lack of visibility on the short and midterm effects of this pandemic. Having this in mind and out of prudence, the Board decided to propose at the next AGM, to be held on June 25, the dividend relating to the 2019 results to follow a payout ratio of 30% instead of the 50% previously announced. This will also preserve flexibility to take opportunities if these arise while managing the impacts of the public health crisis. As mentioned by the Chairman, this decision does not exclude the possibility of proposing the distribution until the end of the year of the remaining value to the 50% payout initially foreseen if the yet to be seen impacts from the pandemic allow it.Since the beginning of March, we have been addressing the developments of the COVID-19 outbreak by following carefully the recommendations of the World Health Organization and of the health authorities of the countries where we operate. Each country took different measures and followed different timings depending on the progress of the pandemic. In this context, our own measures to guarantee the business continuity were adjusted to the different circumstances. The executive management team chaired by the group's Chairman and CEO and including corporate center directors and the CEOs of the business units, has been acting as the Group Crisis Committee. It has been following, on a permanent basis, the developments on the ground and streamlining the decision-making process, wherever needed, to guarantee full support to the operations in a fast-changing context. Our number one priority was to protect the supply chain of essential food products and also to continue to respond more than ever to social emergencies and needs. The 4 areas of work have been focused on: securing the safety of our teams and of our customers, guaranteeing the access to essential food products and at good prices, supporting the business continuity of our suppliers, relieving the increased pressure over the communities to which we belong. Starting with our teams and our customers. The first steps were to protect the ones in our teams who are more vulnerable to this situation by keeping them at home. For the rest of the team, the priority was to put in place safety procedures, cleaning practices and protective equipment in the stores and logistics centers to guarantee a safe working and shopping environment. In the last weeks of March, we also took measures to reduce opening hours in order to allow the stores to work with rotating teams in a moment when the scenarios on the table for the development of the pandemic were highly uncertain. These measures were progressively eased during April. Also worth mentioning that Pingo Doce closed its 36 in-store restaurants and 1 of the 2 central kitchens it operates in Portugal. In what regards ensuring access to foods without forgetting the importance of the price factor in a more fragile socioeconomic context, we maintain promotional activity delivering on our price promise in a moment when many of our customers have seen or do anticipate a reduction in disposable income. With a more operational perspective, we made some rationalization of the assortment to reduce execution risks and increase the stocks of essential goods to avoid disruptions. The operations, our operations, showed a remarkable resilience and some of these measures were totally or partially reverted. In what regards our suppliers, we have been working in even closer cooperation to mitigate risks. Our food banners have extended their orders to small regional producers and provided to small and medium-sized suppliers credit facilities with JM's risk coverage, so they may anticipate their receivables and avoid liquidity constraints. Finally, we kept being an active participant in the communities where we have our stores as part of our way of doing business. As such, we have been giving financial support for the acquisition of masks and hospital equipment, participating in the development of innovative tests, providing food donations to hospitals and reinforcing food support schemes already in place as a response to a moment which is always also a social emergency. Each country took the measures deemed necessary in each moment. First, governmental measures in Poland and Portugal came in mid-March. In what regards retail stores in Portugal, the limited people inside the stores was set as from the 16th March to be 4 people per 100 square meters and changed to 5 per 100 square meters in May. Poland set these limits on the 1st April, limiting the number of people allowed inside the stores to 3 people per checkout, having eased this rule to 1 person per 15 square meters as from the 20th of April. In Colombia, the confinement measures were more severe from April onwards, varying from municipality to municipality and including shorter opening hours and weakened trade bans, which makes the operating environment very challenging to manage. Ahead of the pandemic situation, year-to-date February, group like-for-like was at 12.1%, also including 1 more trading day due to the leap year. The impacts of the COVID-19 outbreak in March performance smoothed this growth to 9.5%. In Poland and Portugal, in March, we saw signs of stockpiling in the first half of the month, followed by weak sales in the second half as the confinement measures started to be put in place. Biedronka faced severe sector restrictions in April, particularly until April 20, in what concerns the number of customers allowed inside the stores. As a response, the company extended the opening hours to facilitate the access to consumers and has been performing in a very resilient way, with sales growing 6.5% in the month in local currency. Following the restrictions in place, Pingo Doce faced the tough combination of reduction in traffic in April with signs of trading down and continued pressure from the closure of its restaurants and ready-to-eat services. As a result, sales declined by 16.3%. Recheio and Hebe were the most affected businesses and continue to experience a very difficult situation in April. In Colombia, in Q1, we essentially had the impact of the stockpiling as the confinement measures, varying from municipality to municipality, were more severe as from April, affecting 30% of our stores with mandatory closures on weekends. This limitation had a material impact on April sales growth that was 16.5% in local currency. Just one more word on April's performance. To remind you that on top of very restrictive measures imposed in terms of store accesses and contrary to what was registered in April 2019, there was no meaningful benefit from Easter celebration. This insight on current performance helps to understand the high volatility we are still facing, but should not be taken as a proxy for next months. In fact, in May, market conditions and imposed rules have been eased, and we need to wait and see what will come out of it. Looking at the key performance figures. Consolidated sales grew 11% to reach EUR 4.7 billion. At constant exchange rates, sales growth was 12%. Group EBITDA reached EUR 309 million, broadly stable versus Q1 '19. EBITDA margin was 6.6%, which compares with 7.3% in Q1 '19. Net profitable -- profit attributable to Jernimo Martins was at EUR 35 million, a decrease of 43.8% on Q1 '19, strongly impacted by exchange rate differences accounting under IFRS 16. The group ended the period with a net cash position of EUR 137 million, excluding capitalized operating leases. Looking now at our Q1 P&L. Group registered a sound 11% sales increase or 12% at constant exchange rates. This had the positive contribution from all banners. The evolution of the gross margin in the quarter results from a positive mix benefit in Poland and Portugal and the continuing margin increase in Colombia. Three factors I would like to mention in what regards the EBITDA margin pressure seen in the quarter. First, the costs incurred to address the pandemic situation that amounted to around EUR 15.5 million, of which half will very likely be nonrecurrent in the next months.Second, the decision taken by the group in the context of its vision on corporate responsibility to launch in Poland a foundation with the purpose of supporting the elder population groups in a vulnerable situation. The contribution, which is expected to be annual, was equivalent to EUR 11 million. And finally, to remind you that Q1 already included around EUR 6 million related with the quarterly costs of the compensation program that in 2019 started to be recognized as from Q2. A word on financial cost that were EUR 63 million versus EUR 40 million in Q1 '19. This progression relates to foreign exchange losses in the amount of EUR 21 million that had to be recognized as at 31st March 2020. Going a bit more into detail for full clarity. Under IFRS 16, the capitalization of euro-denominated lease agreements in Poland has to be booked considering the exchange rate at the zloty at the end of its reported period, generating a difference versus the amount recognized in the last full year accounts. According to the standard, this difference has to be booked as financial results on the P&L. Although being just an accounting adjustment with no cash flow impact, this exchange difference introduces volatility in net earnings as it depends on the zloty exchange rate of the last day of the reported period versus the one used in the previous annual accounts as at 31st December 2019. In the period and in line with normal business seasonality, cash flow was negative in EUR 109 million. The higher CapEx payments registered in Q1 2020 relate to the concentration of the 2019 investment program in Q4 '19 that led to a higher amount of CapEx payables at year-end. These amounts have now been paid. The balance sheet reflects the solid financial situation of the group that ended March with a healthy positive cash position. We invested EUR 90 million in the first 3 months of the year, of which 25% were allocated to the acquisition of the building where the head offices in Portugal have been working. Biedronka's CapEx was close to 50% of the remainder value. In the short term, and due to the lack of visibility over the full impacts of the current situation, we decided to be even more prudent with regards to balance sheet management. Moving now to the operating performance. I will focus on the 3 months without isolating March as we already did that in the beginning of this presentation. All businesses had a very strong start to the year, leading group sales to grow by 11%, with like-for-like at 9.5%. This performance had 1 more day trading in February due to the leap year and 3 fewer days of trading in Poland due to the Sunday ban. In Biedronka, sales grew 13.2% in zloty and 12.6% in euros to EUR 3.3 billion. Like-for-like growth was 11.1%, reflecting a very strong competitive position that led to a market share increase of 1.4 percentage points. In Poland, food inflation remained high, reaching 7.7% in Q1. In our basket, inflation was 4.9% on average for the 3-month period. In the execution of its investment program, Biedronka opened 11 stores, 8 net additions and remodeled 39 locations. Hebe sales grew 15.2% in local currency and 14.6% in euros. In the context of the pandemic situation, like-for-like slipped into negative territory. The growth registered in the online operation despite the acceleration seen did not compensate for the much lower level of store activity. The banner opened 8 stores and ended March with a total network of 281 locations, of which 28 are stand-alone pharmacies. Pingo Doce sales grew by 3.5% to EUR 936 million, with 3.5% like-for-like, excluding fuels. In the quarter, the basket inflation was 1.2%. The banner opened 1 convenience store and remodeled 3 locations in the first months of the year. Recheio sales were broadly in line with the previous year. The growth at the start of the year was overshadowed by the freeze of the HoReCa segment as from mid-March. The stronger activity in traditional retail did not compensate for the practically total loss in sales to hotels, restaurants and cafes. In Colombia, Ara continued to leverage on its reinforced price strategy that delivered well in the quarter, with sales growth reaching 52.3% in local currency, supported by a like-for-like of 34.3%. In Q1, Ara opened 19 stores and closed 7 locations that did not reach the expected delivery. Group EBITDA, at EUR 309 million, was broadly in line with Q1 '19. If we exclude the costs related with COVID-19, EBITDA would have been EUR 325 million, 4.6% up on the previous year. The combined EBITDA losses generated by Ara and Hebe reduced from EUR 10 million to EUR 2 million, driven by Ara's performance. The company posted EBITDA losses of EUR 3 million, a reduction of 70.2% from Q1 '19, minus 67.4% in local currency. Hebe's EBITDA stood at EUR 1 million, pressured by weak top line performance in March. Excluding IFRS 16, the combined losses from Ara and Hebe were EUR 16.4 million, of which EUR 11.8 million are related to Ara. Group EBITDA margins was 6.6%, down from the 7.3% registered in the same period last year. This margin performance was impacted by 3 factors: One at the level of the operating companies related to the costs incurred to manage the business under the current pandemic situation; and the other 2 at the corporate level, the contribution to launch the Biedronka Foundation and the recognition of the quarterly costs of the compensation program. At Biedronka, the EBITDA margin decline reflects mainly the costs incurred to address the pandemic situation. In Portugal, the margin progression, on top of the increased costs related to COVID-19, also reflects the personnel cost inflation pressure due to the wage increases implemented at the beginning of the year and the deleverage effect from negative sales performance in March, which was particularly strong in Recheio.We entered 2020 with strong competitive positions in all our markets and also in a sound financial situation as a group. Our focus on profitable and sustainable growth remains unchanged. And right now, that basically means responding with determination to the challenges raised by the pandemic situation and its devastating impact on the overall economic activity. We will keep delivering on our promises to the consumer, distribute quality essential food products at low prices, on proximity and in a safe shopping environment. In March, our teams acted promptly in a difficult and unpredictable context. The resilience of our operations and their capacity to change and adapt were impressive. Despite the strength of our financial position and our confidence in the banners' ability to deliver in adverse context, we decided that in the very short term, we should be even more conservative on our cash position at least until gaining further visibility on what lies ahead. The decision to reduce for now the dividend payout strengthens our capacity to address any unexpected new challenges without reducing our flexibility to take potential opportunities in the current environment. The information we have so far leads us to conclude that all businesses will be impacted by this pandemic situation. This impact will depend on the development of the outbreak, on the measures that each country takes to address it and on the impact in each economy. All these are today still difficult to predict. We shared with you some data on April, the month that had in place stricter rules so far, in what concerns the circulation of people. These rules have eased in May. And for what we can see, this may help the performance, but it is far too soon to have a clear and reliable view over the next couple of months. Thus and once again out of prudence, we withdraw the guidance communicated on February 20 at the end of the full year 2019 results release. Thank you for your attention. Operator, I am now ready to take questions.
[Operator Instructions] The first question we have today comes from the line of Jos Rito from Caixa bank.
So my first question on this COVID-19 extra costs. You have already mentioned that the EUR 15.5 million off should be nonrecurrent. Should we assume already this in Q2 or eventually only from Q3 onwards? And also, if you could provide a breakdown per cost line related with this EUR 15.5 million also? The second question on the clarification in terms of guidance. You removed the -- you threw out the guidance, regarding expansion in CapEx, but also considering the costs related to the COVID-19 measures. Is the company able to commit with broadly flat margin for Poland this year? Or the removal of -- or the withdrawal of the guidance should also mean that you are not committing at this point for broadly flat margins in Poland this year?And also regarding guidance, I remember that you have previously stated that you would expect Ara to be reaching breakeven by 2021. Should this withdrawal of the guidance also impacting Ara references? So -- or are you still, let's say, comfortable with Ara reaching breakeven in 2021, when, also bearing in mind, that Q1 performance was good?
Thank you, Jos. So on the COVID-19, what we mentioned, these costs were all in March, as you may understand. So what -- when we say that probably we will only keep as recurrent 50% of these costs, we are talking about monthly cost. And monthly costs starting already as the pandemic continues. And as we said, we don't know how it's going to develop. So as to the breakdown in March, so affecting Q1, the majority of these costs were in Biedronka because this was the company that was able to start sooner already introducing the disinfections and the masks, et cetera, on the teams. So basically, most of the costs was in Biedronka. But it's affecting also the other businesses already, and we have seen that already in Q2. As for the guidance, as we said, we withdraw the guidance. All the different headings that you mentioned, the margin in Biedronka, the expansion, the CapEx and even the other breakeven were guidance that we provided under the circumstances and what we knew at the full year results release. At this point, of course, we would like to say that the margin will be stable for Biedronka, that we will reach a breakeven. And one thing I'm sure of is that our teams will do all their best to do that and to achieve that, but we cannot compromise on that at this point. We don't think it would be responsible from our part, and you know us for some years now. We don't like bad surprises or to give bad surprises to our shareholders. And so we cannot -- it would not be responsible from our part to say that we have clarity enough to promise on that. But one thing is for sure, we will fight for that.
Okay. Okay. Understood. But -- so on this cost, so can we assume that at least from May, we could see some easing of the cost that we had in March? Could this be a fair assumption? So part of the cost, the EUR 15.5 million, to not be in mind?
Can be a fair assumption. Of course, we don't exclude if we have to increase the cost for any reason regarding to this evolution to protect our consumers, to protect our employees and to respond to social emergency situations. But I think it's a good proxy for you to consider as now.
The next question today comes from the line of Cedric Pablo (sic) [ Cedric Lecasble ] from MainFirst.
Yes. This is Cedric Lecasble from MainFirst. I would have 3 questions. The first one on trying to understand who is winning there in the different markets where your April sales have been growing quite materially. So the whole markets in Poland and Portugal should be higher logically as restaurants and catering are closed, you have more meals at home, consumers need to eat. So just want to understand who wins. And in particular, in Portugal, where it's pretty tough in April, is it linked to hypers only, to your large stores? And could you recall us the share of your large stores in your total sales? And maybe help us with the impact of the closure of restaurants and the kitchen you mentioned.The second question is on the remedies and the cost phasing. It's linked -- it's a follow-up on the first -- on the previous question. But in terms of Capex, should we understand that all the stores that you were going to decide to open would be stopped and all the stores where you were already engaged will be open? Could you help us maybe understand, especially in Colombia, how many stores already committed to open this year? And the last question, would be -- I'm sorry. On -- I thought -- yes, sorry. You said also that you were helping some suppliers with liquidity and helping in these tough times. Could you maybe help us on how this could impact working capital and your free cash flow this year or working capital? To what extent do you change the terms -- the usual payment terms and what's the overall impact for you?
Thank you, Cedric. So on the different marks -- markets, it was different, of course, because also the different measures taken by the governments allowed us to respond or limited the response that our teams had. For instance, the fact that, in Poland, you didn't have a state of emergency allowed us, for instance, to extend the opening hours, to open to 24 hours in some cases and to do other kinds of initiatives that in Portugal would be very difficult to do with the state of emergency. And again, with Ara, it was even more difficult to do because you have curfews that force us to close the stores at 2:00 in the afternoon, just for you to have an idea. And in some cases, we are not allowed to open in certain days of the week. And in 1/3 of our stores, we cannot even open at weekends. So this, of course -- because it also has a state of emergency situation. So this, of course, has a big impact on the short-term top line of each of our businesses. So in relative terms, it's difficult to say at this point. One thing is for sure. And I think that -- I don't know if it helps, but I think it helps to put things in context. In Portugal and in Poland, the out-of-home market is not quite the same as in France or in the Netherlands or in the U.K. So when people go home, there is not this big transfer of out-of-home to in-home consumption as one could expect. And even if there was, you may recall that Pingo Doce has the highest sales per square meter in Portugal. The fact that you have restrictions, depending on that, in fact, hampered the performance of Pingo Doce. What we saw from some market share input that we got, namely from Nielsen, is that we noticed that the traditional retails and even some convenience stores have been gaining and growing. And of course, other proximity players like, for instance, [ Minipreo Express ] that also mentioned that they increased their sales in March because, of course, people will not be able to get in the stores in Pingo Doce to do their shopping, so they have to shop elsewhere. And so this really affected the performance in April. Of course, as we said, we'll have to wait and see how the easing of these measures, and the easing of these restrictions and let's see if they do not change depending on the evolution of the pandemic, will bring us the traffic as we expect. So on the hypers, it's true that the hypers were able to grow or to have their performance least affected because they can cope with more people in sites. They have more square meters. But it's -- we don't -- we only have 9 hypers. So it's very small in the total of the chain, and it doesn't change much the needle in this case.
Ana, if I may just -- I'm sorry. Just in Colombia, you have convenience stores. So these convenience stores should be -- should benefit. I understand that the trading conditions are much tougher for Ara with a lot of constraints on the state of emergency. But at the same time, people need to shop to eat. And your stores are quite convenient and have this convenient service that people are looking for when they can't move too much. So the slowdown in April versus a very strong trend in Q1 are quite tough to understand from the outside.
I understand. For us, of course, it's easy because we see and it's even. I have to say that probably if we didn't have decentralized decisions at regional level would be very difficult to cope because I can tell you that depending on the municipality, you close the stores on Monday, on Tuesday, on Thursday, whatever. So the information on the sales growth is really very hampered by the whole situation. Of course, this is something, as you can -- as you say, people have to eat, and we have stores in the neighborhood. So it would be in principle, and I think that in relative terms, Ara will probably be performing better than the others, but I cannot and I don't have information to tell you this in this way. But from that point of view, I would probably say that people, of course, went back to the basics. They are buying the minimum as possible. You don't have the people in the stores. Part of their income was lost because the -- with the curfews and with the state of emergency, people cannot go to work. There is a lot of informality in the economy. So as we can expect, there was a big decrease in the consumption in the country. And that, of course, has an impact, of course, on our stores. So in relative terms, Cedric, we probably are better off than the others. But I cannot take that conclusion at this point. On the CapEx, so we -- what we have done was basically, we are keeping and we continue to invest in the locations that we find strategic. What we are not doing is -- and because also we can compromise even with our developers or with our -- with the construction workers because we don't know how this is going to develop. What we are doing is basically postponing part of this investment until we have more visibility and until we see what kind of resources our even suppliers in CapEx can bring. Because with all the restrictions, it's even hard, in some cases, to get all the equipment or get all the construction done. So basically, what we are saying is that, yes, we are suspending the constructions, but we keep investing, not at the same level, of course, because it's -- we don't see it as possible at this point, and again, with the measures taken at each of the countries. So we have -- yes, we have stores committed, but we are not starting their construction in some of the cases. On the suppliers, some are having tough times, but what we do immediately in March was providing the credit facilities, namely our confirming lines, and proactively address each of these suppliers to very swiftly invoice our companies to be paid immediately. So we are using our lines. We don't -- in principle, this will not -- this is something that we use usually. But in some cases, some of the suppliers were not using it, were not aware -- fully aware of it. So what we did was proactively offer that to them. And we don't expect, in fact, to have a big impact on the working capital, of course, because in these small and medium suppliers are not the ones that have the bigger wave in the sales. So we don't think in principle that will be many changes in the working capital. There was, in the beginning, some pressure on the stocks, but because, of course, of the stockpiling having to respond, having to be able to have everything in the store because we didn't know how the supply chain would react if the borders would be closed or not. So what would happen. But for the moment, I think that everything is smooth on the operations on that front.
The next question today comes from the line of James Grzinic from Jefferies.
I have 3 questions, and very specific questions. The first one is we are almost 1 month through the unlocking process in Poland. So I presume you have a very good feel for the shape of what seems to be a recovering trend in sales there. So if you could share that, it would be very helpful. The second one is, can you perhaps provide us a feel for what CapEx might look like for the full year, specifically relative to your original guidance? And the third one, can you perhaps add more color on the opportunities you're mentioning, perhaps in which geography you're looking at specifically that you sense that you still have some interesting things coming your away, I presume, at very interesting prices?
Okay. Thank you, James. So on Poland, as I said, in May, the first signs following the easing in the measures seem to be good. But as I also said, this will depend on how things will evolve. So again, as I said regarding April that we could not take it as a proxy, we cannot take also for granted that what we have been seeing in May that, of course, is a better situation, but we cannot exclude that something may happen, and this may change also. So on that...
Yes, sorry, Ana, if I go on that because you're very specific on April, it would be very interesting to understand what the first couple of weeks in May look like, just to understand the magnitude of improvement.
Okay, James. But we are not going to give that. We haven't closed the month, in fact. And of course, we are looking, of course, at every day's turnover, as always, in fact, but we are not going to provide very detailed information on May at this stage. I think that you have to wait for the second quarter at least. On the CapEx. At this point, I cannot give you a figure because it really -- we can resume investments if things evolve in a good way. So we exclude -- as we don't exclude paying the remaining of the dividends, we also do not exclude to then accelerate the CapEx if we feel that we have, we and our suppliers have conditions to deliver the stores that we want to open. So the expansion plan hasn't changed, but what we see now is that, that will probably be slightly delayed. The impact on that on the number of the year, it will really depend on when CapEx will resume with its normal strength and with its normal level. On the opportunity, so we continue to monitor opportunities. And we don't -- again, I think that nothing changed on that front from our full year results release. So we think that we have the possibility to expand at this stage to a different market in the surroundings of Poland using Polish -- the Polish purchasing capabilities and sourcing capabilities. But at this stage, we cannot give you more guidance or more color on that front. So we continue to monitor the outskirts of Poland, being between the different countries, the priority being Romania, as the Chairman has already said several times.
The next question today comes from the line of Rob Joyce from Goldman Sachs.
The first one, just wanted to clarify on the cost side of things. So it sounds like you're saying, roughly in 2Q, as things stand, we should expect EUR 24 million-ish of cost from COVID-related measures. But versus the first quarter, you won't have the incremental EUR 6 million of staff bonuses, and you won't have the EUR 11 million related to the foundation. And just whether you could give an idea of how the geographical split going forward will look on those costs. And then the second one, just to confirm, in the first quarter and running through April, May, as you see it so far, are you gaining share in Poland, do you think? And how are your relative -- how does your relative price position look now?
Thank you, Rob. So on the cost side, what you mentioned, it can be a good proxy. So -- and I can confirm, of course, that we won't have the contribution to the foundation. The total amount was provided for in the first quarter. And of course, in comparing with last year, you won't have the compensation program difference. On the COVID costs, this, of course, will depend a little bit more. From what we see now, I think that the value that you mentioned can be a good proxy. As for the distributions at this point, what I said was that the majority in March was from Biedronka. I would say that now between Portugal and Poland, this will be most of the numbers that going forward between the 2 countries because, of course, we have our people, most of our working force is in these 2 countries. But also Colombia will have to take measures and introduce more cost with disinfections, with protective equipment, and with all the help that it can bring to the local community. On gaining share in Poland. So until March, as I said, we gained 1.4 percentage points in share. So on the 3 months -- the first 3 months of the year. From what, we don't have the numbers, but I would say that probably Biedronka also gained share despite all the -- and against all odds considering all the measures that they introduced, and I can tell you that this really showed a lot of resilience and a lot of determination to keep the stores opened from 6:00 a.m. to 24 -- so until midnight, or in some cases, to allow for people to do their shopping because in some days, there were 2 hours queues in Biedronka, to do their shopping even over the night before Easter. And so I think that -- I don't think that Biedronka lost any share in Poland because it really did everything to overcome the restriction. And basically -- what was the question?
Just on the relative pricing, sorry, I was wondering, I mean, you said you've maintained your level of investment for the growth as you've talked about moving away from promotions and how you've done that?
So yes. So in terms of relative terms, of course, we don't -- and this is something that I would like to highlight. We continue to bet on price, and we think this is going to be even more important as people, as I said, they not only lost available income in some cases as they do anticipate that they will lose. And we want to make sure that we don't -- so even in the stockpiling, we didn't take advantage -- any advantage of the situation, the same in Portugal, in Poland and in Colombia, and we really want to reinforce our price perception during all this crisis because we think it's going to be very important for a consumer that will see its available income going down.
The next question today comes from the line of Andrew Porteous from HSBC.
A couple of questions, if I could. I know you're not giving guidance around CapEx, but could you perhaps give us some context around what you're seeing in terms of CapEx? Is this a case of you not being able to deploy capital in terms of store openings and therefore, cutting guidance? Or is it a case of you sort of wanting to be a bit more cautious about how you deploy capital more generally and sort of maintain some flexibility there? Just trying to get an idea of when that might sort of return to normal. And then if you could talk about some of the impacts in Poland. I mean, on minimum wages, have we still seen a step change in costs there? And are there still some sort of cost pressures outside of COVID in that market?
Thank you, Andrew. On the CapEx, it's really a mix because we are being cautious on one side, not that we are very concerned. But of course, we look at our cash position, and we have to take that into consideration. And I will give an example. What would -- it would be very difficult for Recheio to open the store that we had for this year, considering that there was a big loss in the HoReCa. So we have to see how things evolve to then push and say to the company that the priority should be on the extension or opening a new store when it has to adjust and adapt its software and really go after all the sales that it can get considering the highly leverage and the high impact that it had in its sales. On the other side, it's true also that, of course, with the fact that the lockout during April, and we don't know if there will be any other additional measure, we hope not. But if the pandemic evolution goes not as we would like to, and there are other lockouts, this will affect, of course, all, even the capacity for our suppliers in equipment and in construction to do their work. So we prefer not being and chasing after something that we can do afterwards. The only thing that we don't want to miss is the locations that we want. And on that, we may engage in Colombia, in Poland and in Portugal. On the minimum wage in Poland. So we did all our remunerations, so package increase in January this year. And this, of course, put pressure on the quarter results also. This happened in Portugal. And in Poland, of course, with the -- with less sales in Portugal, it had a direct impact in the EBITDA margins. But as for now, we are not seeing that much pressure. We think that there will be an increase in unemployment in Portugal and in Poland, unfortunately. I don't know -- probably that will help on that front. But again, it's -- we have a lot of mixed feelings about that because, of course, we would prefer to have pressure on wages and then have people continuing to trade up and to buy the products with higher margins. But so on minimum wages going forward in Poland, as we did all the adjustments, I don't see any big pressure from that. On the next years, of course, it will depend on how the governments will address also that. And it will depend on, I would say, on the progression of the pandemic and of the economy.
The next question comes from the line of Maria-Laura Adurno from Morgan Stanley.
Just coming back with respect to all the comments you've made around, well, potential deterioration in consumer confidence. In the previous crisis, how did that evolve on your side? Did you have like loss of customers, pricing point versus food inflation? So any comments that would help us contextualize what could happen would be extremely helpful.
So it's not potential. We have already in the numbers from April, and I can tell you that consumer confidence decreased drastically in all the countries where we operate. So I don't expect at this point, with all the pressure in these 3 economies that to go differently. We don't have a comparable basis because even in the previous crisis, there were, let's say, the context was very different. It was not a global pandemic, a global problem that will affect, in fact, the world economy and not just the countries where we operate. What I think is that we have very strong positions. We have a terrific operations team and that we have formats that, as we put price in the core of our business model and we have an operation that can run quite efficiently in relative terms, again even with the decrease in the market, we think we'll be in a better position than probably other players in the market. So we will continue to bet on providing very competitive prices and a very competitive offer that will adjust to the needs of the consumers, of course, depending on things evolve in terms of confidence and in terms of purchasing power for the consumers.
The next question comes from the line of Ali Birkby from Citigroup.
Two further on Poland, if I may. Firstly, despite a slowdown in PPI inflation, Polish food inflation, as you said, still remains high against the backdrop of the weakening consumer. How do you expect your internal inflation volume and also mix to be impacted in the second quarter and then through the remaining '20? And then secondly, how did the level of promotional intensity changed in March and April? And how do you expect these levels to evolve into a recession? And what's your expectation to the impact on gross margin going forward?
Thank you, Alastair. So on the inflation, this, of course, will depend a lot. We saw a decrease in price in the commodities all over in the world for now. But we also know that we have a lot in Poland that may affect the production of the agriculture this year and have -- may put some pressure on the prices. But one thing is for sure, Biedronka has been, in fact, contributing to controlling the inflation in Poland. As you see, our food inflation is below -- our basket inflation is below the country's inflation, and we'll make sure that, that will continue to be that way. So the level of promotions in April may have increased, of course, because with all the actions that we had to do in order to keep also sales and say to the consumer that it would be worthwhile to wait in the queue despite the restrictions to go to Biedronka. It's -- but I would say that, yes, it may continue in Portugal, in Poland, in Colombia, but to show to the consumer that our prices will be the best in the market, and they continue to be relevant and their situation continues to be paramount in our decisions in terms of price and in terms of the efficiency of the operation to keep these prices and to manage our margin mix. So for now, I would expect there will be some pressure because, of course, trade-down puts pressure on the margins. But I think that's what -- we'll do our best to manage it.
Great. I think we were running around 38% in the fourth quarter. So would you say you're in the low 40s in March and April in terms of promotion penetration?
In terms of inflation?
No promotion, sorry.
Alastair, I didn't understand.
Sorry. I think you're running at around 38% in the fourth quarter in your promotional intensity. Is that in the low 40s in March and April?
Well, the promotions in the first quarter were -- were -- in Poland were 34% of our sales. Probably, it's slightly increased in April. Yes.
The next question today comes from the line of Carole Madjo from Exane.
I just have one question left for me. You have been able to improve gross margin by around 20 bps, I think, at group level in Q1. Can you explain what drove this improvement and give some insights per banner?
Thank you, Carole. So the improved margin, as I mentioned in the introduction, it comes mainly from 2 sources. One, of course, is the increase in margin in Colombia versus last year. And the other was that we had a positive mix effect in the first months of the year compared with the same period in 2019 in Portugal and in Poland. So in Pingo Doce and in Biedronka. As you may recall, for instance, in Pingo Doce, we were betting in takeaway. In -- even in the restaurants, these have better margins and help also with the margin mix. And so -- and in Poland, the country was doing very perfectly fine in the first months. And so the margin mix helped on that front and justify the margin that we posted for the first quarter.
Bruno, your line is open. Are you on mute?
No. Thank you very much. I think you called the EUR 21 million IFRS 16 finance charge and accounting noncash charge. But as I understand it, you're effectively borrowing euros through the store lease to invest in Poland, and that is a currency trade, borrowing in one currency to invest in another currency. And I think the finance line charge reflects the fact that this FX rate lost money in the quarter and is, therefore, a real economic loss to the shareholders. So nobody understands why you called it an accounting noncash adjustment when it reflects the real economic cost of an FX rate. Could you please clarify your language you're using there? And also comment on why the leases in Poland are denominated in euros, what's the reasoning behind that? My second question is around the food inflation you already commented on. But if I remember right, meat inflation was very high in Poland. Could you just give your latest comment on whether that's finally started to come down? And my last question is on the EBITDA losses in other. It went down by EUR 20 million. I think EUR 11 million is the foundation. Can you just clarify the main components of the other EUR 9 million and the step-up in other EBITDA losses?
Okay. Thank you, Bruno. So for the foreign exchange, so this has to do with the difference that we have to recognize in, as I mentioned, the lease agreements denominated in euro in Poland. We have -- not all, of course, leases in Poland are denominated in euros. We have some, and in order to give you just the context, these were, in fact, some transactions that we made a long time ago with Tengelmann when we bought Plus. At that point, one of the conditions to buy the stores and really enhance our base of stores was that the lease agreements would be denominated in euro. We wouldn't think at this point, and even with the progression of the zloty, that we should cover for that. We have been paying, and there is an impact of the valuation or devaluation of the zloty each time that we pay our monthly rent. This number that we have now, this EUR 21 million just accounted on March 31, 2020, has to do with the fact that we booked the number of these capitalized leases with a different exchange rate on the 31st December 2019. And this is just the difference between the 2. So it's not really a cash item. The cash items is reflected in our debts with the rents that we pay every month. So on that -- that's why I say that it's an adjustment. It's an adjusted that, in my opinion, from a technical point of view, should be recognized in equity and not through the P&L because it really introduces an artificial change that, for instance, if the zloty keeps exactly the same exchange rate until the year-end, basically, the number won't change across the year, and it will be EUR 21 million at year-end. So the impact on the quarter is huge and is magnified, of course, because we have to recognize this difference this way. And that's why we are mentioning it's an accounting and it's a non-cash because the cash is really reflected in our net debt on -- when we say the EUR 137 million cash already with the rents that we pay in Poland. On the food inflation. So it's true that it's difficult to predict. I think that there will be a mix again on -- between the scarcity in some agricultural products probably in Poland. But we will also know that we will want to keep our prices quite competitive, and that may bring inflation down. So at this point, I don't think that we will be seeing a lot of -- more food inflation in Poland because of the total context. On the EUR 11 million, so what we said was -- so we have the EUR 11 million from the foundation. And then the other EUR 9 million that you mentioned, EUR 6 million is the compensation program and EUR 3 million is the normal increase that had already basically happened in line with the other corporate costs that we have in our P&L.
The next question comes from Joo Pinto from JB Capital Markets.
A couple of questions. The first one, sorry, just a follow-up again on extra costs related to the COVID-19. Can we assume EUR 7 million to EUR 8 million per the month until year-end? And the second question is regarding EBITDA from Ara and Hebe. Can you tell us the EBITDA figures of these 2 banners on the pre-IFRS 16 budget?
Okay. Thank you, Joo. So on the COVID costs, of course, as I said, it can be a good proxy, the value that I mentioned. If it's going to be until the year-end, it will depend a lot. But there is a high chance that it may happen because as we are seeing even the easing measures will imply that we'll have to have -- against what we predicted previously, we will have to increase all our costs in protecting our people and our customers. So in that phase, if you want to assume it for the year-end, I think it can be a good assumption at this stage, I would say. On the Hebe and Ara pre-IFRS 16 losses, as I mentioned in the introduction, so in this first quarter of 2020, for Ara, it was EUR 11.8 million and for Hebe, EUR 4.6 million in losses. This compares last year with minus 20.3% in Ara and minus 2.9% in Hebe.
The next question comes from the line of Nicolas Champ from Barclays.
Could you just quantify the impact of leap year on like-for-like sales for Biedronka that would put January and February performance into context? The second one is to follow up on the question regarding rents denominated in euro in Poland. This is something new for me. You said a few, but could you be a bit more precise as a percentage of total lease contract? Is it 5%, 10%, 15% of the lease contract, Biedronka contracts denominated in euro? And the third question is more a long term and strategic one, given the likely impact of COVID on the consumer habits. Would you contemplate launching online operations in some of your regions at some point?
Thank you, Nicolas. So on the leap year, this is one day. To be very honest, I don't know the full impact, but the -- in the like-for-like of the whole 3 quarters, but I would say that probably it's 1 point -- 1 basis point. And of course, just for you to remember that we don't -- we also consider in the like -- when accounting for the like-for-like, we do not take out the Sunday ban or the Sundays that are closed due to the ban. So you had more 1 day for Biedronka, but less 3 days regarding the trading ban. But the leap year alone, probably, 1 point, but not for sure. So -- and it will dilute, of course, throughout the year. On the rents denominated in euro. So in Poland, that accounts for more or less 10% of our leases. And it was -- because it was quite significant number of stores that we added in the past. As I mentioned, so when we have to capitalize these leases, we capitalize it with considering a certain exchange rate for the zloty. And then we have to adjust it always regarding to this number that is posted in the last days of the annual accounts. So basically, if you want to do the account, the capitalized leases is around EUR 320 million. And this, of course, will change or will have to be adjusted depending on the exchange rate at the end, or at the last day of each new reporting period regarding the 31st 2019 this year. Then we will crystallize it again in 2020 and do always that math. Is that more or less clear?
Yes. Absolutely.
Okay. Then on the COVID and on the online impacts, I -- we partner -- I think it was even made public. We have different partners doing online in Portugal, in Poland and in Colombia. And we didn't see -- yes, we did see a lot of increase because in absolute terms, this was very residual in all the countries. And of course, so taking advantage of this was quite important. But what we noticed is that it was somehow or relatively important when there were restrictions or heavier restrictions, stricter ones, to the -- in the access of the stores. Now that these restrictions have been eased, we are noticing a pushback. So again, people going into the store instead of using the online facility. And probably, again, we don't exclude, of course, to think differently on this. We never stop monitoring the evolution of the market. But the fact is that I think that we have some kind of a natural hedge because we operate on proximity. And that is noticed -- noticeable, particularly in Poland. And so we see -- we continue with the partnership, but we have already seen some decrease in the number of orders from the online. So yes, monitoring at this point. We don't know if we are going on a rush because of this to change and to find an online channel for Biedronka or for Pingo Doce.
The next question is from the line of [ Antonio Seladas ] from [ AS Research ].
My question was also related with online shopping. So do you think -- you don't think apparently that in April, the underperformance in Portugal was highlighted with online shopping. So you don't think it.
No, Antonio, definitely. It was really with the restrictions that we have because I think that it was not, from what we saw and we know that the partnership that we have online works most of the times, even better than some of the direct channels of other players. But we don't think it was what changed the needle here.
Okay. So another question is related with the exchange rates and the contracts in euros and in zloty. So from I understood, the contracts that were done in euros, they shouldn't have impact your exchange rates because they are done in euros. So that is why I did not understand. So if they are done in euros, they don't change. So why there's a change?
Well, it's -- I can tell you that it was -- I struggle a lot also these technical questions. And it's not easy, and it's a little bit counterintuitive. But the fact that you crystallize it in Poland. So you do the reports. You crystallize it in Poland. And then you -- when you put it in the accounts, you do not translate it again into euros. So it's basically that.
The next question today comes from the line of Rob Joyce from Goldman Sachs.
Just a quick follow-up. It sounds very much like in Poland, it's an issue of store capacity and your ability to serve customers. Can you give us an idea roughly of what your -- the decrease in the number of customers you could serve was in April versus May and maybe the baseline in February? And secondly, just an idea of what the average basket size looked like in April versus that sort of January, February period, please?
Rob, we will not provide more information on April. That, again, you'll have to wait for the second quarter results. But I can tell you that in terms of number of visits in our stores in Biedronka before the pandemic outbreak, it was more than 4 million, and it went down to slightly more than 2 million in the beginning of April. So almost half. Then we managed to get back part of that. But even though, was more than 1/3 visits that were lost during the April month. In Portugal, it halved.
And finally, we have a follow-up question here from Cedric Lecasble from MainFirst.
Yes. Just a quick one. You mentioned partnerships in online operations. Could you just elaborate a little bit to recall us what they are?
Hi, Cedric. So in Poland, we work with Volvo. And in Portugal, we work with a company here from Portugal called Mercadona. So it's basically, they do the shops or we provide them with the shops that are done online, and they deliver it.
There are no further questions. Please continue.
Thank you all for your questions and for attending this conference call. With Q1 behind us, we have now 1.5 months into Q2. Despite the prevailing high uncertainty, our operations have been adjusting well, and we believe we have the flexibility and the financial strength to maintain our strategic focus for the short, medium and long term. Thank you once again. I wish you all a nice day, and please stay safe.
Thank you very much. That does conclude the conference for today. Thank you for participating, You may all disconnect.